Do Fundamentals Explain the Behavior of the Real Effective Exchange Rate?
AbstractIn this study, we make use of time series analysis to calculate a real effective equilibrium exchange rate for Sweden. The results indicate that the krona was severely overvalued in late 1992, when the fixed exchange rate regime finally was abandoned. Furthermore, the results indicate that the real effective equilibrium exchange rate has depreciated substantially since the mid-1990s, primarily due to deteriorating terms of trade. The results indicate that the krona was undervalued by some 4 to 5 percent at the end of 2000, given the prevailing economic conditions. We also provide some arithmetical examples of SEK/EUR conversion rates, under various assumptions, to provide some guideline if Sweden is to adopt the common currency in the near future.
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Bibliographic InfoPaper provided by National Institute of Economic Research in its series Working Paper with number 78.
Length: 35 pages
Date of creation: 01 Mar 2002
Date of revision:
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More information through EDIRC
BEER; conversion rate; equilibrium exchange rate; real exchange rates;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-01-27 (All new papers)
- NEP-IFN-2003-01-27 (International Finance)
- NEP-RMG-2003-01-27 (Risk Management)
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